Yield Theory
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Macro

Basis Points

A basis point is one-hundredth of a percentage point (0.01%), a unit used to describe small changes in interest rates, yields, and other financial percentages.

Basis points exist to remove ambiguity. Saying a rate rose by 50 basis points is precise, whereas saying it rose by half a percent could be misread. One hundred basis points equal one full percentage point.

The term shows up constantly in discussions of central-bank decisions, bond yields, and fund fees. A quarter-point rate hike is 25 basis points; a half-point cut is 50.

For anyone following monetary policy, thinking in basis points is essential. Markets can move sharply on differences of just a few of them.

Example

When the Fed raises rates by 25 basis points, it lifts the target range by a quarter of a percentage point.

Related terms

Federal ReserveMacroFOMCMacroTreasury YieldsFixed IncomeYield CurveMacroQuantitative EasingMacroQuantitative TighteningMacro

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Basis Points — FAQ

What is Basis Points?

A basis point is one-hundredth of a percentage point (0.01%), a unit used to describe small changes in interest rates, yields, and other financial percentages.

Can you give an example of Basis Points?

When the Fed raises rates by 25 basis points, it lifts the target range by a quarter of a percentage point.

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